Hitachi Target Price Lowered

Hitachi Ltd. (HIT - Analyst Report) continues to make progress in implementing its management plan by reducing operating and fixed costs, and developing new cutting-edge products. The company plans to cut jobs and introduce a major global restructuring plan.

However, growing price competition in emerging technologies, increasing cost of raw materials, weak demand and significant yen appreciation have hurt Hitachi. The company slashed its fiscal 2008 forecast and expects to a post the largest-ever loss in its history, hurt by decline in overseas revenue and losses in stock holdings. Moreover, its net cash balance (cash less debt) has been continuously declining. We therefore maintain a Hold rating on the shares of HIT.

On a price-to-sales basis, Hitachi is trading at a very reasonable 0.1x estimated next four quarter revenue per ADS estimate. We believe the stock has some room for appreciation, but don’t expect a meaningful rally given an uncertain economic outlook and a strong yen. We lower our 6-month target price to $30.00, which reflects a P/S multiple of 0.1x fiscal year ending March 2010 revenue per ADS.

Priyanka Poddar contributed to the report.

Read the full analyst report on HIT